According to a 2021 study by the McKinsey consulting company, 69 percent of digital transformation projects fail—a shocking statistic. That organizations continue to invest in projects that fail at this rate is evidence of the high level of strategic importance that is attributed to them. The cost of this failure is much more than the cost of the resources wasted on the implementation project—it is the impact on the organization's competitive position.
Digital transformation means different things to different people. For some it may be product focused, for others process, business model or a combination of these.
At the University of Waterloo, where I am the author and instructor of our online Digital Transformation Certificate program, we have reviewed the available literature and conducted interviews with manufacturing companies about their digital transformation activities in an effort to better understand how failure rates can be reduced. Some of the challenges we identified were technical, but most were not. I’ll go through one of the most significant causes of failure in a hypothetical case study based on our research.
Continuous Improvement for Engineers
Continuous improvement (CI) refers to collaborative activity designed to make incremental improvements in an organization's activity, including products, services and processes. One of the areas that we identified as being a significant cause of failure in digital transformation projects was a lack of employee participation in continuous improvement activities.
Employee involvement in improvement activity is an objective that many companies have pursued, with varying degrees of success. It is a critical element in digital transformation. Employees should contribute when implementing digital transformation projects, and when the implementation process is complete, continuous improvement helps overcome initial glitches and refines flow in new processes. Later, CI helps companies maximally exploit new technologies as processes and requirements change in response to rapidly changing markets.
To better understand how continuous improvement can help overcome the challenges of digital transformation, let’s see how it works in practice.
The Operations Manager’s Dilemma
Gerry Santos is an operations manager for a manufacturer of automotive brake components. He oversees various machining operations, some of which are now automated and others that are completed by technically skilled employees. The manufacturer uses lean principles in its operations.
Gerry’s company has been considering how the increasing use of technology in business will impact it and what its response should be. The managers know they have limited resources to invest and want to maximize the value of any investment made. While people with the appropriate technical skills will be contracted to install the new equipment and applications, Gerry will be expected to apply the technology in his department effectively.
The company has decided to introduce Internet of Things (IoT) technologies, adding sensors to machines that will gather data that can be used to improve operational activity. Gerry will have access to the data and it is expected it will contribute to his daily management activities. The engineering team will be able to use the data for their maintenance activity too. It is hoped that the machine operators will also be able to use the data to improve their own work through the application of continuous improvement processes.
The company does not have employee continuous improvement processes that are being used in any meaningful way. While training in CI had been done a few years ago, daily production targets had been the priority and the training had not been applied in shop floor activity. Levels of mistrust between management and employees were also a concern. Layoffs during Covid two years ago had made employees cautious about suggesting improvements that could lead to job losses. Recent recruitment, as business has improved, has meant that some employees are less familiar with industrial processes beyond their immediate job.
Gerry was also concerned that the improvement activity should be aligned with company performance objectives. He didn’t want well-meaning employees being demotivated when ideas they had were not supported because they weren’t performance priorities.
Gerry knew that for continuous improvement to be introduced and sustained he would have to consider these factors. Improvements made would need to be consistent with the lean principles that were in place in the factory, time would need to be found in daily activities to work on improvement projects, trust would need to be restored between managers and machine operators and knowledge of processes may need to be increased for some employees. Clearly, implementing continuous improvement would require more than just training in continuous improvement skills.
The Continuous Improvement Plan
Gerry considered the main elements of his continuous improvement plan. First, he needed to improve his employees’ understanding of the operating system model (lean manufacturing) being used in the factory. He wanted to ensure that the improvements arising from employees would be consistent with the model, and so decided that training in its fundamentals would be part of his plan, along with training in continuous improvement problem solving skills.
It would be difficult to allocate the appropriate time for problem solving activity. Gerry was under pressure to maximize output and he knew that wouldn’t change. Continuous improvement activity would need to be based firmly on its performance impact. This would require a review of performance metrics and updating them where appropriate to ensure that any production time lost would be more than recovered in the benefits of the improvements made.
Gerry decided that a weekly continuous improvement meeting would be held at the start of work on Wednesdays, for 10 minutes, to brainstorm ideas and identify possible projects. He would use overtime to allow employees to work on projects if required. Gerry also believed that improvement would require resources and empowerment. Maintenance engineers would be instructed to provide support and an approval levels policy would be created, defining what shop floor teams could change on their own.
It would take time to improve trust levels, to motivate employees to actively participate in improvement and to give them confidence that their ideas would not result in a deterioration in the quality of their jobs. Gerry would start to do this by discussing it with the Operations Vice President who could raise the topic at a senior level, necessary for the consistent commitment to positive company – employee relationships.
Process knowledge would also be improved with training and the introduction of greater role flexibility. Knowledge of a wider range of jobs in the factory would enable better collaboration in process improvement and enable more flexible working, with its own performance benefits.
Digital Transformation Requires Careful Planning
The introduction of Internet of Things technology is intended to enable processes to be better understood and improved. Often, the performance benefits of this technology will only be gained when employees throughout the organization adopt and engage with the technologies, in ways that modify and improve existing processes on a continuous basis. This case provides an example of the range of issues and the level of commitment needed to maximize the beneficial impact.
Gerry’s plans are typical of the efforts organizations make to implement continuous improvement, but his plans don’t guarantee success. They will need to be carefully monitored and it is likely modifications will be needed. Allocating 10 minutes at the start of the shift on Wednesdays will require careful planning to ensure the time is used well and delivers the results desired. Training in process knowledge will need to be of good quality and achievement of outcomes will need to be confirmed. Flexible working will often require negotiations with employees and its own implementation activities.
This case study shows that digital transformation is about transforming the whole organization, and it requires awareness of the technology impact and requirements as well as careful planning to incorporate them. Our work at the University of Waterloo indicates that weaknesses in these areas are the most common cause of failure.
There has been some discussion elsewhere that the impact of technology will reduce competitive differences between similar organizations. If the impact of technological change was gained simply by installing it, this argument may have merit. This case emphasizes that it is the quality of the work that is done to exploit the technologies that will create competitive advantage.